1981 (3) TMI 75 - SC - Income Tax

Whether the partner of a firm is also liable to be convicted for an offence committed by the firm if he was in charge of, and was responsible to, the firm for the conduct of the business of the firm? Held that - The evidence in the present case shows that it was respondent No. 1 and not respondent No. 2 who was in overall control of the day to day business of the firm. The second respondent is not liable to be convicted merely because he had the right to participate in the business of the firm under the terms of the partnership deed.

Summary

Issues:
1. Interpretation of Section 18A of the Drugs and Cosmetics Act, 1940.
2. Liability of partners in a firm for offences committed by the firm under Section 34 of the Drugs and Cosmetics Act.

Analysis:

Issue 1: Interpretation of Section 18A of the Drugs and Cosmetics Act, 1940
The case involved charges against partners of a firm under various sections of the Drugs and Cosmetics Act. The defence claimed compliance with Section 18A, which requires disclosure of details of drug or cosmetic acquisition. The defence produced a letter as evidence. The prosecution alleged the details were fictitious, but failed to prove it conclusively as the Inspector's report was not examined. Consequently, the defence's version remained unchallenged, and the violation of Section 18A was not established.

Issue 2: Liability of partners in a firm for offences committed by the firm under Section 34 of the Drugs and Cosmetics Act
The appeal questioned the acquittal of the second respondent under Sections 18(a)(ii) and 18(c) of the Act. The State argued that partners are liable under Section 34 of the Act for offences committed by the firm. The section holds individuals responsible if they were in charge of the firm's business or if the offence was committed with their consent, connivance, or neglect. Referring to a similar provision in another Act, the Court emphasized that being "in-charge" implies overall control of the day-to-day business. In this case, it was established that the first respondent, not the second, had control of the firm's operations. Therefore, the second respondent could not be held liable solely based on partnership rights, as he was not in overall control of the business. The appeal was dismissed as lacking merit.

In conclusion, the Court upheld the acquittal of the second respondent and dismissed the appeal by the State of Karnataka, emphasizing the importance of proving liability under Section 34 and establishing violations of Section 18A for convictions under the Drugs and Cosmetics Act.